As a consumer, you might be more prepared for going cashless than you think, especially if you’ve used Venmo as a verb. COVID changed buying behaviors across the globe, accelerating the shift away from cash and adoption of alternate payment options.
Businesses that plan now for a cashless society will be sitting pretty in the not-too-distant future. Analysts predict that Sweden will become the first cashless society by March 2023. The country has decreased the cash in circulation by 50% over a decade.
The shift to cashless promises to lower costs, increase convenience, and provide greater security for consumers and businesses alike, but also carries some risks.
The disappearing dollar: Cashless options go mainstream
A cashless society is an economic state in which goods, services, or contracts are purchased using credit cards, digital wallets, or other methods rather than physical currency notes or coins.
During the pandemic, contactless payments skyrocketed. In 2020, tapping, holding a phone or credit card to make secure payments using short-range technology grew more than 100% year-over-year in the US for items like groceries and pharmacy purchases. It became common for merchants, especially small ones, to accept only cashless payment.
Types of cashless currency:
Mobile payments– payments made on the go through a mobile phone
Cryptocurrency– a digital payment that does not use banks to verify transactions
Digital wallets– Apple Pay, Google Pay, and Samsung Pay. PayPal and Venmo are also considered digital wallets
Audiences of the biggest game in football were served a visually arresting and initially perplexing ad by Coinbase, an online platform for buying, selling, and transferring cryptocurrency. The spot was so popular it crashed the app. Other Super Bowl advertisers included Crypto.com and FTX, indicating that cryptocurrency is on its way to becoming mainstream.
Cashless benefits and risks
If you’d told me five years ago that restaurants would replace leather-bound menus with QR codes, I’d have laughed you out of the room. But at this point, it’s easier to comprehend the speed at which things can change. As we prepare for the potential of a cashless society, let’s look at the pros and cons.
For consumers, cashless means spending money on your terms is going to get easier. It’s also much less germy than cash. But the trend carries the risk of leaving many unbanked people with few options to buy goods.
The FDIC estimates that 18% of American households are underbanked, meaning they use a combination of cash and alternative financial services (payday lender, check casher). Moreover, the cost of overdraft fees for these families averages $350 annually. In addition, cashless can create a barrier for service workers paid in part through cash tips.
But the cashless trend could benefit businesses in multiple ways, after they make adjustments. Transactions are faster and international payments are less com complicated. They can increase customer satisfaction by meeting buyers exactly where they are at any given moment. And according to analysts, the cost of doing business with cash is greater than the profit when cash transactions represent less than 7%.
Cashless can help brands drive e-commerce growth and also learn more about consumers to more effectively serve them.
Businesses need to learn what payment options their customers prefer and determine the technologies they’ll need to live up to their expectations. Understand that you’ll need to provide options as preferences will vary by age, location, and other factors. Various security procedures will also come into play.
Financial technology — referred to as fintech — is helping facilitate cashless payments. During COVID, fintech solutions were a bottom-line saver as they made contactless payments possible.
For companies, fintech tools can provide insight on account activities; for consumers, there are mobile apps and dashboards to track balances.
Investment in fintech is growing, surpassing $105 billion in the Americas last year. One such investment, very popular in online shopping, is embedded finance. For example, as you look at products in a shop linked through Instagram, you might find an option to pay in installments. This service is made possible through fintech APIs, allowing small retailers to offer credit options, despite being non-financial providers.
Blurring the lines between shop and lender for the customer’s ease is an example of how a cashless society can offer benefits to businesses and consumers.